Traditional IRA

With a Traditional IRA you can put more of your money toward retirement now, let that money grow tax-deferred, and benefit from annual tax deductions on contributions.

The advantages of pre-tax savings

When you contribute to a Traditional IRA, your money goes in on a pre-tax basis. As a result, you’ll get a tax benefit with lower income taxes for the year. In addition to an up-front tax deduction, Traditional IRAs allow you to grow retirement savings tax-deferred. Interest and capital gains aren’t taxed when gains are realized, only once you withdraw. Required minimum distributions begin at age 70½, at which point the money you withdraw is taxable as ordinary income.

Is a Traditional IRA right for you?

If the benefits of pre-tax savings appeal to you, make sure you meet and understand the requirements for opening a Traditional IRA. Simply put, almost anyone with earned income can open an account. But there are restrictions and limits related to contributions and deductions. Visit the IRS site for current rules.

Consider a Traditional IRA if you:

• Prefer to get an up-front tax benefit and to pay taxes during retirement
• Plan on being in a lower tax bracket once retired
• Are not part of an employer's qualified retirement plan
• Qualify for income tax deductions on all or part of your contributions

Things to consider

• Withdrawals before age 59½ may be subject to a 10% early withdrawal penalty. You may also owe an excise tax if you do not begin to make minimum required distributions by April 1 of the year after you turn age 70½.
• Your ability to realize tax deductions may vary based on income.
• Current contribution deductions are limited to $5,000 annually if you are under 50 as of 12/31/12, and up to $6,000 if you are older than 50 as of 12/31/12.